Pricing decisions

General Comments:
– The word count is 2500 words
– Harvard referencingstyle to be used
– 20 references minimum(20+)
Assignment’s question and how to frame the answer:
The question:How do firms set prices?
– This is economics module. Focus only on the economic aspect of the question, not marketing.
– Provide some critical thinking. Criticize the theories and models, not just explaining them (discuss the assumptions, can they be applied in real world).
– Include diagrams to demonstrate answers is possible whenever necessary.
How to frame the answer:
The question:How do firms set prices?
– There are four basic economic perspectives that must be covered:
1) Pricing in perfectly competitive markets- i.e. no market power (all this is based on supply and demand)
2) Pricing where market power exists
3) Price discrimination and differential pricing with heterogeneous consumers
4) Profit maximizing price-setting and pricing in practice
Note: You need to explain all the four points with examples.
Some additional things to think about:
– Include some of the following in your answer as well as appropriate:
• Market share
• Market positioning and segmentation (is price discrimination possible in these circumstances?)
• Differentiation and brand loyalty reduce the price elasticity of demand and what about horizontal demand curve?
• How do aggressive tactics affect pricing?
• The existence of complements, substitutes, barriers to entry, contestable market
• Consider gain theory, collusions versus competition, can Kinked demand curve lead to stable prices, structure conduct performance paradigm, Prisoner’s Dilemma
• You may also consider whether firms are motivated to maximize profit on the short or long term?
• How things are different from merit and demerit goods?
• The shareholders’ relation in revenue versus profit maximization (principal agent problem)
• How does product life affect pricing?
• Pricing including excluding tax liabilities?
• The influences of related products?
• Dynamic versus sticky prices?
• The difference between goods and services in b2b and b2c?
Note: Consider from the aforementioned points whatever you want. You don’t have to include them all.
Guidance for splitting the report:
– Introduction (150 words)
– Pricing in perfectly competitive markets- i.e. no market power (all this is based on supply and demand) (500 words)
– Pricing where market power exists, including the subsections (700 words)
– Price discrimination and differential pricing with heterogeneous consumers (500 words)
– Profit maximizing price-setting and pricing in practice (500 words)
– Conclusion (150 words)

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